Strengthening agricultural co-operatives in Kazakhstan

OECD Global Relations Secretariat
The project is co-financed
by the European Union
Kazakhstan Regional Competitiveness Project
Astana, Kazakhstan
21 April 2015
OECD EURASIA COMPETITIVENESS PROGRAMME
Strengthening agricultural co-operatives in Kazakhstan

2OECD Global Relations Secretariat
Agenda
1. Overview of work conducted for the Peer Review of Kazakhstan in 2014
2. Presentation of the final report: Strengthening agricultural co-operatives in Kazakhstan

Armenia, Azerbaijan, Belarus, Georgia, Republic of Moldova,
and Ukraine
Eastern Europe and South
Caucasus Initiative
Afghanistan, Kazakhstan, Kyrgyz Republic, Mongolia, Tajikistan,
Turkmenistan, and Uzbekistan
Central Asia
Initiative
The OECD Eurasia Competitiveness Programme
The OECD Eurasia Competitiveness Programme was launched in 2008 and aims at
contributing to economic growth and development in eleven countries of the former
Soviet Union as well as Afghanistan and Mongolia.
Co-chaired by Poland
and Sweden
Co-chaired by
Kazakhstan and EU
Note: This map is for illustrative purposes only and is without prejudice to the status of or sovereignty over any territory, and
to the delimitation of international frontiers and boundaries.

The Regional Competitiveness Project
Supporting the design and launch of an FDI approach to regional SME development
• Highlight regional capabilities
• Reduce policy barriers and attract FDI
• Lead to stronger regional, sector and SME competitiveness
• Contribute to the reduction of the gross regional product inequalities
Investment
promotion coherence
“Awareness, competitiveness
and attractiveness for FDI”
Governance and
strategic planning to
attract FDI
“Multi-level coordination”
Regional linkages
“Inclusiveness while strengthening
entrepreneurships/SMEs”
Regional
Competitiveness monitoring &
evaluation
“Monitoring impact”
1 2 3 4
Policy areas of the project
• Construction materials
(electronic land database)
• Petrochemistry
• Construction materials
(electronic land database)
• Agriculture (co-operatives)
• Agriculture (dairy)
• Forestry
Objective: to maintain and create permanent jobs and entrepreneurship in the regions
Advice and capacity-building focusing on 3 pilot
regions with 2 pilot sectors per region:

Summary of events for the peer review of Kazakhstan
Event Dates What is needed from Kazakhstan
1 First Peer Review Mission to
Astana and Akmola
5-7 August 2014
2 Second Peer Review Mission
to Astana and Karaganda
23-24 September 2014
3 Capacity building seminar in
Trento, Italy
13-17 October 2014
4 OECD Eurasia
Competitiveness Roundtable
27 November 2014
5 Final draft policy handbook to
be shared with Kazakhstan
10 December 2014
6 Launch event in Kazakhstan 21 April 2015 • Final round of comments and
questions for the OECD
✓
✓
✓
✓
✓

• Working groups were held at the Ministry of
Agriculture on 6 August 2014 and 24 September 2014.
• They included participation of senior experts from the
OECD, Food and Agriculture Organisation of the United
Nations (FAO), University of Jerusalem, Israel, and
University of Adelaide, Australia.
• Discussions focused on the legal and regulatory
framework, taxation of co-operatives and private sector
participation in co-operative development.
The peer review missions in August and September provided a forum for discussion
of the main policy barriers to the development of co-operatives in Kazakhstan
Field visits
Working groups
• Field visits and interviews with farmers were held in
Akkol district, Akmola region on 5 August 2014, and in
Osakarova district, Karaganda region on 23 September
2014.
• Interviews focused on farmers’ awareness of the
benefits of co-operatives, trust in co-operation, and
the prevalence of informal co-operation amongst
farmers.

The Capacity Building Seminar in Trento provided a forum for discussion of OECD good
practices with a view of strengthening Kazakhstan’s institutional capacity
Exchange
experience
Discuss good
practices and
common
challenges
Debate and
challenge OECD
recommendations
Strengthen
Institutional
Capacity of
Kazakhstan’s
policy makers
Key aim Process
• Case study materials
• Personal work
experiences
• Trento case study
presentations
• Field visits
• Developmental
challenges in the Trento
region
• Kazakhstan’s policy
environment
• Good fit to agricultural
policies in Kazakhstan
Mach Foundation
A research centre
focused on promotion
and innovation of land-
based economy
products
CONCAST Consortium
A consortium
specialised in the
production of cheese
Winery Mezzocorona
A modern
wine-producing
co-operative

The Capacity Building Seminar in Trento included a mixture of in-
house discussions and field visits
Field visits
• Classroom work was based around group work and
case studies
• Additional case study examples were debated and
learning points extracted
• Expert presentations introduced the theory behind
The Co-operative Model, Governance and Management,
as well as Skills Enhancement for Co-operative Members
Classroom work
• Trentino Federation of Co-operatives
• Mach Foundation
• Mezzacorona Winery
• CONCAST Dairy Consortium

Peer review at the OECD Eurasia Competitiveness Roundtable:
Strengthening agricultural co-operatives in Kazakhstan
OECD Eurasia
Competitiveness Roundtable
Kazakhstan
Lead
expert
OECD
secretariat
OECD
countries
Eurasia
countries
Lead
expert
Lead
expert
The peer review of Kazakhstan was held at the 2nd meeting of the OECD Eurasia
Competitiveness Roundtable on 27 November 2014 in Paris
Draft report including
reform guidelines
finalised with OECD
support
Draft report presented
by lead experts and
reviewed by Roundtable
members
Finalisation of Policy
Handbook based
on comments provided by
Roundtable members

Overview of challenges and policy recommendations

Agenda
1. Overview of work conducted for the Peer Review of Kazakhstan in 2014
2. Presentation of the final report: Strengthening agricultural co-operatives in Kazakhstan

Reforms to land ownership and the farm structure resulted in a substantial reallocation
of production from agricultural enterprises to small-scale producers
 There were 7 965 registered agricultural enterprises in Kazakhstan in 2013, with an average land size
of 4 747 hectares. This represents a substantial decline from 1991, when a total of 4 594 agricultural
enterprises operated with an average land size of 42 929 hectares.
 In 1991 small-scale producers accounted for 32% of agricultural output, and by 2013 their share had
increased to 76%.
Source: Committee on Statistics, Ministry of National Economy of Kazakhstan (2014).
Note: Small-scale producers = Households + Individual Farms.
1991
1995
2000 2005 2009
2013
0
10
20
30
40
50
60
70
80
90
100
0 10 000 20 000 30 000 40 000 50 000 60 000
Shareofsmall-scaleproducersin
totalagriculturaloutput(%)
Agricultural land in use by small-scale producers (thousand hectares)

Agricultural output is highly fragmented in Kazakhstan, with households and individual
farms accounting for the majority of crop and livestock production
 In 2013, households and individual farms accounted
for 76% of gross agricultural output in Kazakhstan
 Households and individual farms contributed to 66%
of crop production and 89% of livestock production
Crop
Livestock
Gross agricultural output
0%
20%
40%
60%
80%
100%
Households Individual farms Agricultural enterprises
0%
20%
40%
60%
80%
100%
0%
20%
40%
60%
80%
100%

The contribution of households and individual farms to gross agricultural
output varies significantly across Kazakhstan’s regions
Key: Small-scale producers = Households + Individual Farms
 Households and
individual farms
contribute over 90% of
agricultural output in
the Western regions,
due to unfavourable soil
and climatic conditions
 Small-scale farming is
well established in the
Southern, Central and
Eastern regions
 Large-scale agriculture is
more developed in the
major grain-producing
regions of North
Kazakhstan, Kostanay
and Akmola
Small-scale producers > 90% agricultural output
Small-scale producers = 80-90% agricultural output
Small-scale producers < 80% agricultural output
West
Kazakhstan
Atyrau
Mangystau
Aktobe
Kostanay
Kyzylorda
South
Kazakhstan
Zhambyl
Karagandy
Akmola
North
Kazakhstan
Pavlodar
East
Kazakhstan
Almaty

Small-scale producers dominate crop and livestock production,
particularly in the Western and Southern regions
Key: Small-scale producers = Households + Individual Farms
 Small-scale farms produce over
70% of crop output in all regions,
except for the major grain-
producing regions of North
Kazakhstan, Kostanay and Akmola
 Households and individual farms
account for the vast majority of
livestock production in Kazakhstan
– ranging from 78% of livestock
output in Kostanay to 99% of
livestock output in Atyrau
Small-scale producers > 90% crop output
Small-scale producers = 80-90% crop output
Small-scale producers < 80% crop output
West
Kazakhstan
Atyrau
Mangystau
Aktobe
Kostanay
Kyzylorda
South
Kazakhstan
Zhambyl
Karagandy
Akmola
North
Kazakhstan Pavlodar
East
Kazakhstan
Almaty
West
Kazakhstan
Atyrau
Mangystau
Aktobe
Kostanay
Kyzylorda
South
Kazakhstan
Zhambyl
Karagandy
Akmola
North
Kazakhstan
Pavlodar
East
Kazakhstan
Almaty
Small-scale producers > 90% livestock output
Small-scale producers = 80-90% livestock output
Small-scale producers < 90% livestock output

Households and individual farms account for the majority of production
in a number of important commodity sectors
 In 2012, households and individual farms accounted for 96% of milk production, 83% of meat
production, 93% of vegetable production, 95% of potato production, 97% of cotton production, 95% of
wool production and 51% of oilseeds.
 Small producers also play an important (albeit less significant) role in the output of other products,
such as grain (37% in 2012), rice (39%) and eggs (36%).
0
10
20
30
40
50
60
70
80
90
100
Shareofsmall-scaleproducersin
totalproduction(%)

Small-scale producers can play an essential role in ensuring food security
and reducing Kazakhstan’s reliance on imported food products
 In recent years agricultural imports have outpaced exports, leading Kazakhstan to become a net
importer of agricultural products from 2009.
 Reducing the country’s reliance on food imports and ensuring food security are strategic policy
objectives for the government of Kazakhstan.
Source: UN Comtrade (2014), United Nations Commodity Trade Statistics database, UN Comtrade,
http://comtrade.un.org/data/, accessed September 2014.
-3000
-2000
-1000
0
1000
2000
3000
4000
5000 1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Agricultural exports Agricultural imports Agricultural trade balance

Small farms and households in Kazakhstan face significant difficulties and structural
disadvantages in competing with large-scale agricultural enterprises
 Limited information on prices
 Missing input and output markets
 Credit constraints
 Low bargaining power with large processors and input suppliers
 High transportation costs
 Difficulties investing in innovation and new technologies
 Difficulties purchasing farm machinery and transportation equipment
 Limited access to advisory services

The government of Kazakhstan should increase efforts to integrate
small-scale farms and households into agricultural markets
Helping small-scale households to integrate into supply chains is a key
recommendation of the OECD Review of Agricultural Policies: Kazakhstan 2013.
Policy options to support small-scale producers
Improve the provision of general services, particularly extension
and advisory services
Facilitate increases in farm operations by removing regulatory
and administrative barriers to acquire agricultural land
Strengthen credit programmes for small producers
Promote vertical arrangements between processors and small-
scale farmers
Support the development of agricultural co-operatives

Agricultural co-operatives can help to create a level playing field for
small-scale producers
 Purchase of farm inputs in bulk, leading to lower per-unit costs for members
 Joint sale and delivery of members’ output, allowing the cooperative to meet
minimum quantity barriers imposed by large processors and retailers
 Establishment of processing facilities, generating higher prices for members’
produce
 Collective ownership or leasing of machinery and transport vehicles
 Negotiation of credit for members, achieving better terms and lower interest
rates than a typical small farm would obtain on its own
 Provision of agricultural extension, advisory and market information services
 Lobbying the government for reforms to national and regional policies
A co-operative is defined as “an autonomous association of women and men, who unite
voluntarily to meet their common economic, social and cultural needs and aspirations
through a jointly owned and democratically controlled enterprise” (ICA, 2014)
Source: ICA (International Co-operative Alliance) (2014a), “Co-operative identity, values & principles”, ICA website,
http://ica.coop/en/whats-co-op/co-operative-identity-values-principles, accessed September 2014.

Agricultural co-operatives are well developed across most OECD countries, with the
average farmer being a member of at least two cooperatives in Austria, the Czech
Republic, Finland, Germany, the Netherlands, Portugal and Sweden
1 Includes membership in several co-operatives.
2 A total of 844 “rural consumer co-operatives” and 1 448 “production co-operatives” were registered in 2013.
Source: COGECA (2010); Eurostat (2010); ICA (2014c); Lerman and Sedik (2014a); Okan and Okan (2013); USDA (2014).
Country
No. of
agricultural
co-operatives
No. of
co-operative
members1
No. of farmers
Co-operative
members as a
share of total no.
of farmers
Eurasia
Kazakhstan 8442 16 700 2 420 821 0.7%
Ukraine 801 21 521 5 300 000 0.4%
Selected OECD member countries
Austria 1 049 405 930 150 170 270%
Czech Republic 596 55 700 22 860 244%
Finland 46 183 000 63 870 287%
France 3 000 580 000 516 100 112%
Germany 2 994 1 807 000 299 130 604%
Greece 6 170 714 000 723 060 99%
Hungary 58 20 177 576 810 3.5%
Ireland 150 181 000 139 890 129%
Italy 5 748 866 615 1 620 880 53%
Netherlands 60 156 750 72 320 217%
Portugal 905 1 044 900 305 270 342%
Slovenia 76 16 539 74 650 22%
Spain 3 989 972 380 989 800 98%
Sweden 30 275 000 71 090 387%
Turkey 13 935 4 462 754 3 900 000 114%
United States 2 186 1 976 700 2 103 210 94%
Selected OECD partner countries
Latvia 107 8 422 83 390 10.1%
Lithuania 201 8 739 199 910 4.4%

Short-term challenges to the development of agricultural co-operatives in
Kazakhstan: Weaknesses in the legal and regulatory framework
 In Kazakhstan, the Civil Code distinguishes between “production co-operatives”, which
were mostly created from the restructuring of former collective farms, and “rural
consumer co-operatives”, which are somewhat comparable to the agricultural service
co-operatives that are widespread in OECD member countries.
 According to the Civil Code, “rural consumer co-operatives” are defined as “non-
commercial” (non-profit) entities and are prohibited from distributing their surplus
amongst members.
 There are currently a total of five separate laws covering co-operatives in Kazakhstan:
the Law on Production Co-operatives (1995), the Law on Agricultural Partnerships and
Associations (2000), the Law on Rural Consumer Co-operation (1999, 2012), the Law on
Consumer Co-operatives (2001, updated in 2012) and the Law on Rural Water User Co-
operatives (2003).

Kazakhstan: Weaknesses in the legal and regulatory framework
 Individual farms and households are discouraged from setting up new co-operatives or
joining existing co-operatives, because doing so would lead to a higher tax burden.
 “Rural consumer co-operatives” have the status of legal entities, and are eligible for the
special tax regime (i.e. 30% of the standard taxation rate).
 Individual farms are classified as non-legal entities, pay a single land tax payment (calculated
as 0.1% to 0.5% of the estimated cadastral value of the land), and are exempt from all major
tax payments, including personal income tax and VAT.
 Households are classified as “physical persons” and are not required to declare and pay
personal income taxes.
 To be eligible for the special tax regime, a legal entity must not have subsidiaries and
members of co-operatives must not be members of other co-operatives using the
special tax regime. This restricts farmers from joining more than one co-operative, and
is a barrier to the development of a multi-level co-operative network.
 The current requirements and procedures for the registration of co-operatives are
burdensome for farmers and need to be streamlined further.

Short-term challenges to the development of agricultural co-operatives in Kazakhstan:
Low awareness of the benefits of co-operatives and limited trust co-operation
 Due to Kazakhstan’s Soviet legacy, farmers do not understand the concept of
agricultural co-operatives in the context of a market economy. They automatically
associate the term “co-operative” with a production co-operative, which is a structure
that still exists in Kazakhstan today as a remnant of the former collective farm system.
 In market economies, co-operatives do not aggregate small land parcels for primary
production on a larger area of land as production co-operatives do. Farmers in co-
operatives continue to produce independently on their own land, and the main
objective of the co-operative is to improve the welfare of its members.
 Farmers in Kazakhstan also have little confidence in the potential benefits of co-
operation, due to their negative experience with collective agriculture and government
policies during the Soviet period.
 The government does not provide any non-financial support to co-operatives, such as
education programmes, dissemination of leaflets and publications on the benefits of
co-operatives, or legal assistance for the establishment of new co-operatives.

Kazakhstan: Lack of targeted financial support
 Co-operatives in Kazakhstan face substantial difficulties obtaining bank loans and government
financing. Their inability to obtain financing from commercial banks is typically the result of
stringent collateral requirements, insufficient assets and reserves, and a lack of alternative
lending mechanisms such as group lending or lending against production committed under
forward contracts.
 The ACC established a lending programme to support agricultural co-operatives in 2006, with
USD 22 million of funding allocated in the first year. However, funding has since decreased
dramatically, and accounted for just 2% of the ACC’s credit portfolio in 2009-2011 .
0
5
10
15
20
25
0
5
10
15
20
25
2006 2007 2008 2009 2010 2011
Loans to co-operatives (USD million) Share in ACC credit portfolio (right axis, %)

Kazakhstan: Lack of targeted financial support
 Existing policies offering financial support for co-operatives suffer from inefficiencies
and poor targeting. Consequently, a large proportion of co-operatives in Kazakhstan
are inactive and do not provide real benefits to their members. These inactive co-
operatives were often established to take advantage of government support, were
formed without a clear development strategy and suffer from insufficient commitment
from their members.
 Furthermore, agricultural co-operatives are unable to obtain funding from many of the
other KazAgro agencies: co-operatives are not eligible to participate in state grain
purchases by the Food Contract Corporation, there are no micro-lending programmes
targeted to co-operatives under the Fund for Financial Support to Agriculture, and co-
operatives do not have access to machinery and equipment leasing from KazAgro
Finance.

Overview of challenges and policy recommendations

Key characteristics of co-operative legislation
1. Voluntary and Open Membership: Co-operatives are voluntary organisations, open to
all persons able to use their services and willing to accept the responsibilities of
membership, without gender, social, racial, political or religious discrimination.
2. Democratic Member Control: Co-operatives are democratic organisations controlled
by their members, who actively participate in setting their policies and making decisions.
Men and women serving as elected representatives are accountable to the membership.
In primary co-operatives members have equal voting rights (one member, one vote) and
co-operatives at other levels are also organised in a democratic manner.
3. Member Economic Participation: Members contribute equitably to, and democratically
control, the capital of their co-operative. At least part of that capital is usually the
common property of the co-operative. Members usually receive limited compensation, if
any, on capital subscribed as a condition of membership. Members allocate surpluses for
any or all of the following purposes: developing their co-operative, possibly by setting up
reserves, part of which at least would be indivisible; benefiting members in proportion to
their transactions with the co-operative; and supporting other activities approved by the
membership.
Source: ICA (International Co-operative Alliance) (2014), “Co-operative identity, values & principles”, ICA website,

Key characteristics of co-operative legislation
4. Autonomy and Independence: Co-operatives are autonomous, self-help organisations
controlled by their members. If they enter into agreements with other organisations,
including governments, or raise capital from external sources, they do so on terms that
ensure democratic control by their members and maintain their co-operative autonomy.
5. Education, Training and Information: Co-operatives provide education and training for
their members, elected representatives, managers, and employees so they can contribute
effectively to the development of their co-operatives. They inform the general public -
particularly young people and opinion leaders - about the nature and benefits of co-
operation.
6. Co-operation among Co-operatives: Co-operatives serve their members most
effectively and strengthen the co-operative movement by working together through local,
national, regional and international structures.
7. Concern for Community: Co-operatives work for the sustainable development of their
communities through policies approved by their members.
Source: ICA (International Co-operative Alliance) (2014), “Co-operative identity, values & principles”, ICA website,

Differences between co-operatives, investor-owned corporations and
non-profit organisations (1/3)
Co-operatives Investor-owned corporations
Non-profit
organisations
Ownership Member-owned Investor-owned Generally not “owned” by a
person or members
Control Democratically controlled;
one-member, one vote basis;
equal voice regardless of their
equity share. Members are
involved in the day-to-day
business operations and
receive services for their input.
Controlled by shareholders
according to their investment share.
Business decisions and policy are
made by a board of directors and
corporate officers.
May be controlled by
members who elect a board
of directors or, in non-
membership organisations,
the board of directors may
elect its own successors.
Control is maintained by
those not receiving the
services.
Board
membership
and
compensation
Made up of co-op members
elected by the members.
Usually, they do not work for
the co-op. Costs reimbursed
for board meetings. Board
members usually serve on an
uncompensated, volunteer
basis.
Board is comprised of a
combination of independent
directors, management and other
directors with financial or business
ties to the organisation. Chief
executive officer may serve as the
board chair. Significant financial
compensation is provided for board
service.
Board is generally made up
of people who do not
receive the services, usually
chosen for philanthropic or
political reasons. Board
members usually serve on a
volunteer basis.
Source: ICA (2014), Factsheet: Differences between Co-operatives, Corporations and Non-Profit Organisations, ICA, Geneva, http://ica.coop/sites/default/files/Factsheet%20-
%20Differences%20between%20Coops%20Corps%20and%20NFPs%20-%20US%20OCDC%20-%202007.pdf,

Co-operatives
Investor-owned
corporations
Non-profit
organisations
Board
nomination
and elections
Candidates nominated by
membership either directly, or by a
nominating committee made up of
members. Usually, any member
can nominate a director candidate.
Board is elected by the members
on a one-member, one vote basis.
Candidates nominated by the
board of directors and
management, often by a
nominating committee.
Shareholders have limited ability
to nominate and elect director
candidates.
Either by members or the
board of directors.
Accountability The board is directly accountable
to members through nomination
and election procedures.
Board election and nomination
procedures afford little oversight
opportunity to shareholders.
Shareholders are not likely to be
able to remove board members.
Generally accountable to
members of the
organisation and those
who provide the funding to
the organisation.
Earnings /
dividends
Any surplus revenues (profits)
earned by the co-op are reinvested
in the business and/or returned to
members based on how much
business they conducted with the
co-op that year. Many co-ops are
obligated to return a portion of their
“surplus revenues” to members
each year. Members share losses
and earnings.
Profits returned to shareholders
based on ownership share.
Corporations are generally not
obligated to pay out dividends.
Timing and amount of dividend
pay-out are determined by the
board of directors.
Re-invest any profits they
make in their public benefit
purpose and their own
operations.

Co-operatives
Investor-owned
corporations
Non-profit organisations
Purpose /
motivation
Maximise member services
and satisfaction.
Maximise shareholder returns. Primary motivation is to serve in
the public interest. Redistribute
resources to provide
educational, charitable and other
services.
Source of
funds /
generation of
money
Raise resources through the
equity of members: 1) direct
investment; 2) retained
margins; and 3) per-unit
capital retains (capital
investments based on the
number of physical units
handled by the co-op or on a
percentage of sales).
Typically raise money through
capital markets.
Typically funded by donations
from the private or public sector
or the government. Tax-exempt.
Community Promote and assist community
development.
May engage in selected
community philanthropic
activities.
Serve as a mechanism for
collective action based on a
common good.

Calculation of taxable income for an agricultural marketing co-operative
and an input supply co-operative
Source: Lerman, Z. (2013), “Cooperative development in Central Asia”, Policy Studies on Rural Transition, No. 2013-4, FAO Regional Office for Europe and Central Asia, Budapest.
Marketing co-operative Input supply co-operative
–
Costs (incl. risk margin):
Initial payment to members (dividends)
Operating costs of the co-operative
+
Revenues (incl. risk margin):
Initial payment received from
members for purchases of inputs
+
Revenues:
Sale of members’ products on the
market
–
Costs:
Payments to wholesale input suppliers
Operating costs of the co-operative
= Gross income (surplus/deficit) = Gross income (surplus/deficit)
–
Distribution of surplus/deficit
“Patronage refund” payment
to/deduction from members in
proportion to use of co-operative
services
–
Distribution of surplus/deficit
“Patronage refund” payment
to/deduction from members in
proportion to use of co-operative
services
= Transfer to reserve fund and other funds = Transfer to reserve fund and other funds
 After accounting for the initial transaction with members, operating costs and the distribution of
patronage refunds, the co-operative may be left with some additional surplus. This surplus is typically
transferred to a reserve fund, which is liable for taxation at the standard corporate tax rate.
 This practice is observed in a number of OECD member countries, including the United States and the
Netherlands.

Educate farmers to build awareness about the benefits of co-operatives
The government should develop a targeted education programme to inform and educate
farmers on the benefits of working with co-operatives.
 Basic education: definition of a co-operative, differences between co-operatives and
other organisational forms, main functions and types of agricultural co-operatives,
benefits of co-operatives, alternatives to the co-operative model, potential risks and
limitations.
 Guidance on establishing a new co-operative: the main steps to undertake when
forming a co-operative, including how to conduct a feasibility study, develop a business
plan, register a co-operative, prepare legal documents and obtain start-up capital.
 Preparation of legal documents: specific guidelines and examples on how to prepare
legal documentation for a newly formed co-operative, such as the organisation
agreement, articles of incorporation, bylaws, membership applications and marketing
agreements.
 Financial support: advice on the various options available to obtain financing for the
co-operative, including grants, concessional loans, subsidies, supply chain finance and
equity finance.

Develop targeted financing instruments for agricultural co-operatives (1/2)
Financing programmes for agricultural co-operatives are an essential source of start-up
capital and funding for short and long-term investments. However, it is important to
ensure that financial support does not lead to dependency, and that co-operatives remain
financially sustainable in the long term, particularly after support has ended.
 Co-financing of grants to co-operatives is a technique commonly employed in the EU to
encourage member-producers to take ownership and show commitment to active
participation in the co-operative. Partial participation of governments and international
donors can be developed for a range of support instruments, including seed capital,
grants for machinery and equipment, leasing systems and access to concessional
lending for working capital. In all cases, funding should be conditional on a co-
contribution from the co-operative, to ensure adequate incentives are built into the
financing mechanism.

 Combining financial support with technical assistance can be a useful strategy to
increase productivity, improve skills, promote financial autonomy and support
management independence within co-operatives. This increases the likelihood that the
co-operative’s activities will remain sustainable in the long-term.
 Targeting financing instruments to meet specific investment needs. In Moldova, for
instance, co-operatives are eligible for preferential access to government subsidy
programmes, including credit, risk insurance and investments into orchards, vineyards,
greenhouses, livestock, machinery and processing equipment.
 Strict monitoring and evaluation of lending is necessary to ensure that financial
support is targeted to co-operatives that are economically viable, and not distributed to
unprofitable or inactive co-operatives. This includes the collection of detailed structural
statistics on agricultural co-operatives, which is necessary to assess performance and
identify policy and regulatory barriers that impede co-operatives from operating
effectively.
Develop targeted financing instruments for agricultural co-operatives (2/2)

Contact details
Jean-François LENGELLE
Project Manager
OECD Eurasia Competitiveness Programme
e-mail: jean-francois.lengelle@oecd.org
Antonio SOMMA
Head of the OECD Eurasia
Competitiveness Programme
e-mail: antonio.somma@oecd.org
Wouter MEESTER
Project Co-ordinator
e-mail: wouter.meester@oecd.org
Jibran PUNTHAKEY
Economist/Policy Analyst
e-mail: jibran.punthakey@oecd.org

Strengthening agricultural co-operatives in Kazakhstan

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